Don’t Throw These Documents Out!

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• July 11, 2011
• By Jeff Rose
• 7 Comments

When it comes to paperwork, I tend to be hoarder.  I keep documents longer — much longer — than needed.   I always try to convince myself that I might need them someday. Sometimes I do.  Most of the time I do not.  My wife typically has to ransack our home office and do some serious cleaning. God love her for that.

But when it comes to certain financial documents, it pays to be a hoarder.  I can’t tell you how many times I’ve worked with a client who was missing that one statement or document we really needed, and it was nowhere to be found.

Before I tell you which documents you should keep, here’s a word about how to keep them: organized. If you’ve got a meeting scheduled with an accountant, financial consultant, mortgage lender or insurance agent, spare yourself a last-minute scavenger hunt. Take an hour or two to put things in good order. If nothing else, do it for your family. If something happens to you, they will be contending with emotions and won’t want to search through your house for random pieces of paper.

If you’re like me, then most of the below statements will be accessible online — save a tree!  For some of the documents, it still pays to have a hard copy. You might prefer a few storage boxes, or stackable units sold at your local big-box retailer. Whatever you choose, here is what should go inside:

Investment statements

Organize them by type: IRA statements, 401(k) statements, mutual fund statements. The annual statements are the ones that really matter; you may decide to forego filing the quarterlies or monthlies.

When it comes to your IRA or 401(k), is it wise to retain your Form 8606s (which report nondeductible contributions to traditional IRAs), your Form 5498s (the “Fair Market Value Information” statements that your IRA custodian sends you each May), and your Form 1099-Rs (which report IRA income distributions).

In addition, you will want to retain any record of your original investment in a fund or a stock.

Bank statements

If you have any fear of being audited, keep the last three years worth of them on file. You may question whether the paper trail has to be that long, but under certain circumstances (lawsuit, divorce, past debts) it may be wise to keep more than three years of statements on file.

Credit card statements

These are less necessary to have around than many people think, but you might want to keep any statements detailing tax-related purchases for up to seven years.

Mortgage documents, mortgage statements and HELOC statements

As a rule, keep mortgage statements for the ownership period of the property plus seven years. As for your mortgage documents, you may wish to keep them for the ownership period of the property plus 10 years (though your county recorder’s office likely has copies).

Federal and state tax returns

The IRS wants you to hang onto your returns until the period of limitations runs out — that is, the time frame in which you can claim a credit or refund. The standard IRS audit looks at your past three years of federal tax records. So you need to keep three years of federal (and state) tax records on hand, and up to seven years to be really safe. Tax records pertaining to real property or “real assets” should be kept for as long as you own the asset (and for at least seven years after you sell, exchange or liquidate it).

Payroll statements

What if you own a business or are self-employed? Retain your payroll statements for seven years or longer, just in case the IRS comes knocking.

Employee benefits statements

Does your company issue these to you annually or quarterly? Keep at least the most recent year-end statement on file.

Insurances

Life, disability, health, auto, home … you want the policies on file, and you want policy information on hand for the life of the policy plus three years.

Medical records and health insurance

The consensus says you should keep these documents around for five years after the surgery or the end of treatment. If you think you can claim medical expenses on your federal return, keep them for seven years.

Warranties

You only need them until they expire. When they expire, toss them.

Utility bills

Do you need to keep these around for more than a month? No, you really don’t. Check last month’s statement against this month’s, then get rid of last month’s bill.

If this seems like too much paper to file, buy a sheet-fed scanner. If you want to get really sophisticated, you can buy one of these and use it to put financial records on your computer. You might want to have the hard copies on file just in case your hard drive and/or your flash drive go awry.

Jeff Rose is an Illinois Certified Financial Planner. He blogs at Good Financial Cents and Soldier of Finance.  He loves Crossfit workouts, writes about Roth IRA rules and craves In-N-Out burger. You can follow his updates on Twitter.

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